3 Things You Should Know About Small Business: Jan. 5

NEW YORK ( MainStreet) -- What's happening in small business today?

1. Private-sector jobs rise in December. The latest ADP ( ADP) National Employment Report numbers are out, showing December private-sector jobs rose 325,000 compared with the prior month, the strongest increase since December 2010.

The bulk of the jobs added were by small and medium-sized private-sector businesses. Small businesses added 148,000 jobs in December, up 36% from November. Medium-sized businesses added 140,000 jobs.

Not surprisingly, the service-providing industries made up the bulk of the jobs: 273,000 last month. Employment in the private, goods-producing sector rose 52,000 in December. Manufacturing employment increased 22,000, tripling the previous month's increase of 7,000, while construction employment grew 26,000 during that period, according to ADP.

ADP slightly lowered the employment gain from October to November to 204,000 from 206,000.

"The estimate for December suggests that employment accelerated for the fourth consecutive month, consistent with the year-end pickup in economic growth," says Joel Prakken, chairman of Macroeconomic Advisers, which partners with ADP to create the monthly report. "Today's report, which is notably above the consensus forecasts both for today's number and for Friday's jobs estimate from the Bureau of Labor Statistics, points toward a strengthening labor market."

There are other indicators to signal improving labor market conditions, including "the downward trend in unemployment claims, upturns in consumer sentiment and confidence influenced by perceptions about the availability of jobs, along with a rising trend in employees voluntarily quitting their positions," Prakken says.

2. Tax tips for businesses. Tax season has officially started, and Intuit ( INTU) Payroll has compiled tax tips for business owners when filing their taxes for 2011. Here are a few reminders:

Payroll tax: The two-month extension of the payroll tax cut was signed by President Barack Obama on Dec. 23, keeping the employee Social Security tax rate at 4.2% through February instead of letting it revert to 6.2% as it would have at the end of 2011 (or 10.4% for self-employed taxpayers instead of 12.4%), Intuit says. The Social Security wage limit also increases to $110,100 in 2012.

>>The Real Cost of Hiring an Employee

Health care: The Health Care Act of 2010 required that the cost of employer-sponsored health insurance be reported on an employee's W-2 beginning in 2011 (without making the employer-provided health benefits taxable to the employee). The government has subsequently softened the new reporting requirement in two ways:
  • In 2011, the reporting rule was optional for all employers, small and large.
  • This year the reporting rule will be optional for smaller employers (businesses filing fewer than 250 W-2s).

Some other tips:

The contribution limit for elective deferral-type retirement plans, such as a 401(k)s, has increased to $17,000 in 2012. The corresponding catch-up contribution limit for taxpayers aged 50 or over remains unchanged at $5,500.

Federal, state and local income tax withholding tables will incorporate tax rate changes. The Federal Unemployment Tax Act rate remains at 6%, as the 0.2% surtax lapsed June 30. Some states have increased the minimum wage for workers in 2012.

Although electronic filing of a payroll tax forms is not mandatory for all businesses, it can provide a more efficient means to filing tax returns with the government, Intuit says.

Be careful not to incorrectly treat an employee as an independent contractor because of cost savings. There are strict rules surrounding the proper classification of a worker and steep penalties for failure to apply the law properly, Intuit says.

3. Bank of America defends its decision on small-business credit lines. Bank of America ( BAC) found itself deeper in hot water after a report surfaced this week by the Los Angeles Times saying the Charlotte banking titan was cutting credit lines to some small-business customers. The article said that at least two BofA small-business customers were being forced to pay their balances in full versus a monthly basis.

A BofA spokesman disputed the portrayal with The Huffington Post.

"What we've done is not cut or close credit lines for small-business clients across the board, but rather we've addressed this specific portfolio with a very, very, very small percentage of customers, and just put into place standard practices such as a maturity date and an annual renewal process," the spokesman said.

He said the small businesses within this particular portfolio make up a small percentage of the bank's small-business clients.

The changes were explained "to our impacted clients in letters we sent more than a year ahead of that maturity date, which allowed us to work with all of them to explore other products that were available to them," Jefferson told the site. "We've been able to work with 98% of our clients within this portfolio, and the overwhelming majority of those have the same interest rate as before."

-- Written by Laurie Kulikowski in New York.

To contact Laurie Kulikowski, send an email to: Laurie.Kulikowski@thestreet.com.

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